Car prices are about to soar again. Blame Hurricane Ida

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Ida caused widespread flooding from Louisiana, where it struck as a hurricane on August 29, to the densely populated northeast, where its remains struck hard days later. It killed at least 86 people and its floodwaters destroyed hundreds of thousands of cars, many of which were on car dealership lots. Ida’s anger simultaneously created a sudden demand for car purchases while further destroying already tight stocks. Hurricane Nicholas, which hit the Gulf Coast of Texas early Tuesday, could make the problems worse, especially if it again causes flooding in Houston, one of the nation’s largest motor markets.

The storms couldn’t have hit at a worse time. “Any new problem with car inventory is one too many problems,” said Kayla Reynolds, head of economic and industry analysis for Cox Automotive.

This means big problems for the thousands of people who lost their vehicles as Hurricane Ida hit the Gulf Coast before storming the northeast.

Retired teachers Ira and Ruth Steinberg were perfectly happy with their 2020 Honda Accord. Then the remnants of Hurricane Ida hit their suburban hamlet of Hartsdale, about an hour north of New York City.

A flash flood passed through the garage doors of the condo and inundated it. No one was injured, but the 130 cars parked there were lost.

The Steinbergs called the Honda dealership where they had purchased their previous car. “He said he didn’t have a lot of cars to start with and that he had lost 85% of his cars in the storm,” said Ruth Steinberg.

Fortunately, the Steinbergs’ loss will be covered by their insurance, which provides car rental after a loss, but they can’t find any. They are 200th on the Enterprise rental list.

The couple rely on their adult son, who lives nearby, to get around. They don’t know what they will be able to afford once they get a settlement on their car, or when they can buy it. But they try to keep a good attitude.

“We’ve been through much worse things,” said Ruth Steinberg. “I’m more angry with the Yankees.”

Historic high car prices

Car prices – new and used – have soared amid strong demand and tight inventories this summer, caused by a shortage of computer chips and other spare parts, which has limited production. The shortage was further exacerbated by car rental companies which sold about a third of their fleets in the first few months of the pandemic, when travel nearly came to a halt. These companies are normally a major source of used car supplies. Soaring car prices have been a major contributor to the overall increase in the cost of living, as measured by the Consumer Price Index, the country’s main indicator of inflation. Car prices may have peaked – Tuesday’s August CPI report showed used car prices down 1.5% from July, albeit up 32% from July. compared to the previous year – while new car prices rose only 1.2%, the slowest rate of increase since April. Other car price measures had also shown prices peaking at the end of the summer.

But this trend is unlikely to continue after Ida.

“Excuse the pun, but this is the perfect storm situation. There has never been anything like this before,” said David Paris, senior director of market analysis for JD Power. “We certainly see used vehicle prices go up for two to three months after a storm. But that’s when there is a good level of stock. It is uncharted territory. “

Why floods destroy cars

Major storms can affect car prices across the country for many months as many cars are lost simultaneously.

“A car that has suffered a flood is rotting from the inside out,” said Patrick Olsen, editor-in-chief of CarFax, which tracks damage to cars. “Anytime you have mud or slime in the connections it can create a short in the system which can cause a car to stall while driving.”

Hurricane Harvey, which hit the Houston area in late August 2017, was reportedly the most destructive in terms of severely damaged or destroyed vehicles. Cox Automotive estimates that up to 500,000 vehicles in Texas were lost to this storm, compared to 250,000 for Super Storm Sandy in 2012 and 200,000 for Hurricane Katrina in 2005.

Hurricane Harvey pushed up wholesale used car prices nationwide by about 3% in the month following the hurricane, and prices remained high through November. Experts fear it will be worse this time around, even though fewer cars are affected.

“This is a historically tight market, so the impact will be much more inflated than we’ve seen in previous storms like Harvey,” said Reynolds of Cox Automotive.

CarFax estimates that at least 212,000 vehicles were lost in the storm. And AIR Worldwide, which estimates losses in the insurance industry from natural disasters, estimates that insurers will cover losses of more than 250,000 Ida vehicles. And only about 78% of vehicles will be insured for this type of loss, according to the Insurance Information Institute, which means the number of vehicles lost will be even greater than the insured losses.

Anyone looking to buy cars in the next few months, even those far from the trajectories of this year’s hurricanes, should be wary: CarFax estimates that there are 370,000 storm-damaged cars on the road today, often sold to unsuspecting buyers. Some of these cars have been damaged by previous storms, including Hurricane Katrina 16 years ago.

“If you see a price that’s too good to be true, it’s probably too good to be true for a reason,” JD Power said in Paris.

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